DES MOINES, IA (DTN)--The European Union's head office sought Feb. 26 to step up pressure on Washington to end illegal subsidies by announcing it had fine-tuned a list of U.S. imports that could be hit with $4 billion in trade sanctions, The Associated Press report.

The EU has held off on actually seeking the sanctions after winning its case at the World Trade Organization last August, but officials said they prepared the new draft to keep their options open in case the U.S. legislative process stalls.

EU Trade Commissioner Pascal Lamy will be in Washington March 3 and 4 for talks "to ensure that the process moves forward," said his spokeswoman, Arancha Gonzalez.

In a statement, Lamy said he was encouraged by the Bush administration's proposal to repeal the subsidies in his 2004 budget. "In the meantime, the EU is following the necessary procedural steps to launch countermeasures if the compliance process does not deliver swift results," he said.

The WTO authorized the sanctions--potentially the biggest ever--after finding the United States gave illegal tax breaks to its companies operating abroad.

The EU published a wide-ranging, multibillion-dollar list of potential targets in September, ranging from soap to live animals to nuclear reactors.

But officials and business leaders on both sides of the Atlantic fear the potential impact on trade if the EU imposes the full $4 billion allowed.

Sanctions hurt U.S. producers by making it harder for them to sell their products in Europe. But they can also backfire by pushing up prices in Europe or disrupting production if other suppliers can't be found.

Gonzalez said reactions from more than 400 companies were considered in fine-tuning the list. Products in some industries such as textiles, agriculture and paper were excluded from the new draft, which was sent to the 15 EU governments but not released publicly.

EU capitals would have to sign off on any decision by the European Commission to seek sanctions at the WTO.

"The most important thing is to ensure the United States changes the legislation," Gonzalez said. "We will continue to work with them toward that end."

Congress is now debating a proposal to change the tax law, including provisions to increase taxes on U.S. subsidiaries of European companies.

"Companies such as Renault, Daimler Chrysler and Alcatel are furious because this bill will sock their U.S. operations," said Richard Weiner, a trade lawyer at Hogan & Hartson in Brussels. "The Americans are trying to punish the Europeans for the audacity of bringing the case before the WTO."

In Washington, U.S. Trade Representative Robert Zoellick told the House Ways and Means Committee that he believed the EU still wanted to resolve the dispute without imposing sanctions, but he cautioned that time was running out.

"I believe the EU will hold off on retaliation, but I don't know for how long," Zoellick told the panel, saying it was important for Congress to act this year. "My bottom line is that we can't make this go away. We have got to get this fixed," Zoellick said.

Senate Finance Committee Chairman Chuck Grassley said he planned to move legislation through his committee once Congress had acted on President Bush's new round of proposed tax cuts.

"We're giving this issue a high priority and we'll comply with the ruling," said Grassley, an Iowa Republican.

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